Recent Posts

On several occasions, I have observed that it is difficult to
debate policy when facts are in dispute, and some individuals are
impervious to the revelation of data. I was recently reminded of
this by reader tim kemper's repeated assertions that the "the
2001 act and 2003 act actually increased revenues" (3/1/10).
Most recently, he repeated that assertion (on
10/31) and linked to this
source as proof of his assertion that tax cuts raise
revenues, without realizing that the series he was pointing to
was total (not just income tax) revenues, and not
seasonally adjusted. Below is the actual evolution of personal
income tax receipts both before and after the EGTRRA (the 2001
Bush tax cut).

In other words, it is hard to discern actual evidence for the
extreme supply side proposition that tax rate cuts
increase tax revenues, when examining the data (and
knowing which data are relevant). Now, we know that many things
are going on at the same time, but as a matter of fact
one cannot say that income tax revenues rose immediately after
the beginning of implementation of EGTRRA.

There are more sophisticated ways of analyzing this issue -- in
particular one could say income tax revenues would have been even
lower had not EGTRRA been passed. But I do not know of any
studies that make this particular assertion, and assesses it in
an econometric fashion. In any case, this counterfactual-based
argument is not the typical one made by extremist-supply-siders.
And the fact that revenues had not returned to pre-tax-cut levels
even by the time the economy had returned to potential in 2006
[3].

Of course, this is a separate question from whether output will
be higher with lower taxes; for an analysis, see this
post discussing the 2006 (Bush) Treasury report on the issue,
as well as CBO's assessment.

I know there are some who believe argument by mantra is the way
to go, but I think constructive debate should be informed by
appeal to data.